Labour will be shut out of power for a generation if it succumbs to "a vapid form of leftism" that appeals only to its core supporters, one of the main authors of its manifesto for the 2010 general election has claimed.

In a powerful critique of the party, Patrick Diamond warns that Labour is making a negligible impact on the major issues of the day and is pointing "in different directions simultaneously".

Diamond, a former No10 adviser to Tony Blair who worked with Ed Miliband on Labour's manifesto for the election, writes: "If Labour detaches itself from the complex and contradictory currents of popular sentiment, it risks drifting towards political irrelevance and repeated defeat."

The intervention by Diamond, who worked as an adviser to Lord Mandelson when he was Northern Ireland secretary, echoes the views of some senior party figures who fear Miliband is struggling to make an impact.

Supporters of Blair, who are voicing criticism in private, believe Miliband deserves credit for highlighting the importance of tackling Britain's fiscal deficit. But they believe the electorate will not listen to Labour unless Miliband and Ed Balls, the shadow chancellor, are more honest about Labour's high levels of spending between 2005-2010. Blair had a battle with Gordon Brown after the 2005 election over the need to rein in spending.

• Will be out of power for a generation unless it develops an "overarching strategy" to promote progressive reform while acting as an "agent of security" for struggling working- and middle-class earners.

• Needs to understand that it is being damaged by its association with fiscal irresponsibility. The party should trumpet its record of fiscal prudence by formulating "a zero-based budgeting exercise", which would mean that all public expenditure would be subject to a "public value-for-money" test.

• Re-enter the debate about public services "instead of simply leaving this field free for the governing parties". Diamond takes a dig at Andy Burnham, the shadow health secretary who is demanding the dropping of the health and social care billl, by noting that "some members of the shadow cabinet appear to have turned against many of the reforms which they or their colleagues championed when in government".

• Must adopt a "less tribal and more pluralistic approach" and accept that it may well have to share power with the Liberal Democrats, who could still hold the balance of power even if they are punished at the next election. Diamond believes that Labour should be reaching out to the likes of Vince Cable, the business secretary, who used a Guardian interview to burnish his social democratic credentials.

In his pamphlet, written jointly with Michael Kenny, Diamond writes: "Since May 2010, there has been much venting about [Labour's] core values and sense of identity, and too little focus on what kind of programme the party must assemble to win and govern in the challenging circumstances ahead. Above all, Labour needs to avoid being associated with a vapid form of leftism which pleases some of its core supporters but speaks to few others; and it needs to disabuse itself of the notion that keeping quiet on major issues of the day is strategically astute.

"There is a real risk that the party drifts into a position of marginality in the public consciousness, a position that it came to occupy during the early 1980s. In the face of this threat, on what issues should the party be making a lot more noise?"

Diamond and Kenny say Labour should move on from a debate on the size of the state. "As yet, there are few signs of a serious debate, as the party appears to oscillate between newfound communitarian idealism on the one hand and an ingrained tendency to revert to state-centric solutions when it comes to specific policies on the other. There is no doubt that in the wake of the global financial crisis a more muscular role for the state is necessary – but the centre-left needs to be much more specific about the capacities and powers that are needed in order to increase its efficacy."